Technical Strategy Video:
Key Takeaways
- Internal breadth deterioration in US Equity markets heightens the risk of market volatility in the weeks to come
- Energy’s decline looks to be nearing support after a difficult few weeks
- Crypto selloff looks overdone; Stabilization and bounce into early December likely
Rolling over in Value Line Geometric Composite nearing key make-or-break levels. As seen below, this 1700 stock Equal-weighted Average has pulled back over the last couple weeks, directly aligning with much of the breadth deterioration that markets have experienced since 11/8. Thus, despite a lack of breakdown yet in S&P and NASDAQ, (the latter which moved back to new all-time highs this week) gauges of the broader market have actually weakened. Volatility is actually expected to pick up in the weeks to come in my view technically, not wane, for some very important reasons. At present, it’s just important to pay attention to this uptrend line that’s guided the Value Line since early October for evidence of it being broken in the next couple weeks. Given that the DJIA has dropped nearly 3% or nearly 1000 points in two-weeks’ time, judging the market based on this Equal-weighted broad gauge makes sense given the ongoing uncertainty regarding inflation, Fed policy and Biden’s pick for Fed chair.
Technical Developments:
Nasdaq resilience has not been matched with similar strength in DJIA, SPX, creating intermarket divergence as not all indices are hitting new highs at once.
Percentage of stocks in the NASDAQ hitting new 52-week lows has risen to the highest levels since Spring which is unusual and thought to be negative given NASDAQ hitting new highs
SPX thus far has not broken down, and technically could still experience a rally up to 4750-75. Yet this is thought to be strong resistance and should provide opportunities to sell strength, thinking that 4800 will not be exceeded right away before a 3-5% pullback gets underway
Russell 2k has been particularly weak and nearing the pivot of its own recent breakout which will be important to hold on a retest. Small-caps have been weak now for two straight weeks
Sectors tied to the Re-opening largely have suffered a setback lately and charts of Airlines, Casinos, Cruise-liners all have weakened and look early to buy for a year-end rally
WTI Crude has accelerated its weakness but looks to be nearing the final capitulatory part of its decline and should stabilize next week before turning back higher
Specialty Retailing has been a strong outperformer and following the seasonal playbook for November. This likely lasts a bit longer into end of month before pulling back in December
As seen below, Percentage of stocks hitting new lows on NASDAQ has spiked dramatically, which is unusual given that NASDAQ finished the week at a new all-time high close
Energy looks close to finding support
It’s expected that Energy is close to bottoming technically, precisely at a time when many have begun to worry given the pickup in selling. As Relative charts show of Equal-weighted Energy to SPX, this group peaked at near a perfect level of resistance into October. The seasonally weak November season has played out nearly perfectly per expectations for this time of year. Now we fine Crude nearing support in the mid-70’s given a confluence of Elliott-wave projections, Cycles, and short-term oversold levels for OIH. Overall, this giant base-building for the Energy group is thought to be a real positive and it’s expected that Energy should bounce sharply into December and 2022.
Finally, it’s thought that Cryptocurrencies are very close to bottoming out, and this might have occurred Friday following BTCUSD’s pullback to test support near 55,640. This lies very close to a perfect 1.618% Fibonacci projection of the first move lower from mid-October. Furthermore, Elliott-wave patterns suggest this is very much a corrective move lower which was confirmed after the shape of the initial move down from 10/20 and subsequent failed breakout attempt. Given that November historically has proven to be quite the positive month seasonally for BTC, it’s likely technically that a rally now takes Bitcoin back to new all-time highs into late November/December before any cyclical weakness into the first part of 2022 happens (which will be discussed in the weeks to come on any rally back to new highs.)
Have a Good Weekend All!
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